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Technology Stocks : VISIO Corp (VSIO): Big ISO 9000 Play
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To: Dan Spillane who wrote (250)11/2/1998 8:57:00 PM
From: Grommit  Read Replies (2) of 522
 
Taxes...

Do not want to beat a dead horse. My understanding from one grad business school tax class is that US tax law is such that US corporations get a tax credit for foreign taxes paid. So if a foreign nation charges a lower tax rate, then they pay higher US taxes. The net result is the same, total corporate tax rate of around 40%, no matter what the foreign tax rate is. (Unless there are NOLs to be used as tax credits.) Any tax experts here to comment on this? If this is not true, then explain why every profitable multinational company in the US has approximately the same tax rate.

NOLs do not permanently lower the tax rate. Look on them as a rebate from the government on the purchase price of the asset. If you pay $40 million for a company and pick up $10 million in tax credits, the net cost to you is $30 million. You just pick up the $10 million over time when you file your tax return. You do not say the cost was $40 million and then add $10 million to profit after taxes. (This is what you are trying to do , Dan, when you say use the inflated EPS number -- the one that is based on the lower tax rate. That $10 million should not raise the EPS artificially. You have to take it out and look at a normalized tax rate. This is standard valuation practice on The Street.) NOLs also get used up. So if you look at a run rate with a 26% tax rate, you are misleading yourself because it will pop up to 40% soon enough.

I am done. Good luck. You clearly do not want to hear this.
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